China Lead in Global Exports

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The worlds second largest economy is deliberately slowing growth so as to cool the economy. Analysts believe that if the economy grows at the current rate it would peak as early as next year.

China’s closely watched trade surplus widened to more than $22 billion in June, from $13 billion in May, indicating a lack of progress toward the Group of 20 nations’ goal of re-balancing global growth. China’s trade surplus for the year’s first half, though, was down 18%, reflecting its increased buying of raw materials for infrastructure projects, which sent the value of imports up even faster than exports.

Last week, the central bank raised interest rates for the third time this year, underlining the governments confidence in the economys ability to cope with tighter monetary policy. Benchmark one-year lending rates were raised 25 basis points to 6.56 percent, and benchmark one-year deposit rates were raised 25 basis points to 3.5 percent.

Imports

Chinese imports grew at the slowest pace in 20 months in June, government data showed Sunday, providing further evidence of the broad effect of monetary tightening on the economy.

The slowing rate of imports in June, which dropped to a 19.3 percent annual pace from 28.4 percent in May, is expected to heighten investors concerns about how swiftly the Chinese economy, the worlds second-largest after that of the United States, is slowing.

But coming a day after data showed that inflation in June had reached a three-year peak of 6.4 percent, analysts took the data showing a jump in the trade surplus as a sign that the Chinese central bank might have to raise interest rates further, to rein in prices and to discourage capital inflows.

Exports

Exports reached a record of $162 billion in June, while imports for the month were $139.7 billion. That left the country with a trade surplus of $22.3 billion in June, compared with $13.1 billion in May.

The export performance comes despite rising costs for Chinese manufacturers. They are dealing with the highest inflation in three years, government-directed wage increases and a Yuan that has strengthened more than 5.5% against the dollar in the roughly 13 months since China began letting it climbalthough the Yuan has weakened against other major currencies in that period.

The data Sunday showed that June exports had risen 17.9 percent from the same period a year ago, slowing from a 19.4 percent rise in May and pointing to the weakness in overseas demand that has seen exports and new orders soften across most of Asia.

TheslowdowninJunetradegrowthreflectsslowingsequentialmomentumandahigh year-earlier comparisonbothforexports andimports.Thisis notsurprising,asthe recent declineinthePMI exportordersandimport indexes pointed toweakerexternal anddomesticdemand.

Yuan drop

The Yuan’s 11% drop against the euro since last June, which makes Chinese goods cheaper in the euro zone, is helping China to beat the likes of Italy and Spain in exporting to a variety of markets, including to other European nations. Exporters in European economics such as Greece, Spain, Italy and Portugal, where wages are relatively high and productivity growth has been slow, are particularly vulnerable to Chinese exports.

Measured against all the currencies of China’s biggest trading partners, the Yuan fell nearly 5% in the 12 months through May, says the Bank of International Settlements.

Domestic demand strong

For the second half of the year, we expect exports to continue to fall due to the impact from theEuropean debt crisis, Japans earthquake and other factors, said Tang Jianwei, an economist at Bank of Communications in Shanghai.

The trade surplus will be maintained in the second half of the year, but domestic demand is still relatively strong, he said. So we are expecting a full-year surplus of $100 billion.

Sources: WSJ, nytimes, chinadaily

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